Capital Gains and Assets in India - Canada Income Tax Convention -

QUESTION:

Hello,
I was born in India and acquired Canadian citizenship in 2007 after I married a Canadian citizen. I have recently taken up a job here.
I possess some investments in form of land and stocks in public listed companies in India. I know that there is a treaty between India and Canada to avoid double taxation however I had a few points that needed clarification:
1.&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspHow will capital gains earned in India be viewed by Income tax authorities in Canada? For instance, one may hold equity shares in a public listed company in India that one might sell but NOT pay any tax in India since they were long-term investments and therefore qualify for exemption under long-term capital gains here in India. However I am not sure how they will be treated in Canada. How will Canadian tax authorities view long-term capital gains from sale of shares in a public listed company in India?
2.&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspIn my filing of income tax returns in Canada, will I need to declare my assets in India?
3.&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspHow are gifts (of cash or assets) TO AND FROM BLOOD RELATIVES IN INDIA viewed by Canada Tax authorities? In India, such gifts between blood relatives are exempt from tax.
4.&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbspHow will any other form of income in India be taxed such as rentals from owned buildings, earnings from other investments like trading in land? I am trying to obtain a a broad overview of what I need to be aware of so I do not run into any trouble later.
Thanks,
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As a resident of Canada, you are taxable in Canada by Canada on any
income you earn anywhere in the world.

Every asset you own in India should be valued as of the date you moved
to Canada. Since you are already a citizen, I am assuming that you
moved here at least 3 years ago. If you were mistaken about your
citizenship and meant to say that you acquired PR (permanent residency)
status when you married, then the date would be later.

1. Any income in value on your Indian assets will be taxed on their
sale on the difference in their value from the date you moved to
Canada. If you paid 30,000 rupees and it was worth 100,000 when you
moved to Canada and you sell it later for 120,000 rupees, it may or may
not be taxable because you have to convert the value of the 100,000
rupees when you came to Canadian Dollars and then convert the 120,000
when you sell to Canadian Currency and if the value of the rupee had
fallen 30% relative to the Canadian dollar in that time, you would
actually have a capital loss in Canada. This is what has happened to
everyone with US dollar holdings from 2003 to 2008.

2. If you have over $100,000 (at cost) of Indian assets in stock
or land, you will have to fill in Canadian form T1135 to report the
existence of the assets and any income. Failure to file the form is
penalized at $25.00 a day.

3. If some stranger or a relative wants to give you money as a gift
and no services were given or expected, the gift is tax free as far as
Canada is concerned.

4. interest, dividends, rents, agriculture and wages are all treated
differently under the treaty and the tax act.

Some of the items are reproduced below - you can find the whole treaty
(and should read it a dozen times) at

1. Income from immovable property
(including income from
agriculture or forestry) may be taxed in the Contracting State in which
such property is situated.

2. For the purposes of this Agreement,
the term “immovable
property” shall be defined in accordance with the law and usage of the
Contracting State in which the property in question is situated. The
term shall in any case include property accessory to immovable
property, livestock and equipment used in agriculture and forestry,
rights to which the provisions of general law respecting landed
property apply, usufruct of immovable property and rights to variable
or fixed payments as consideration for the working of, or the right to
work, mineral deposits, sources and other natural resources; ships and
aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall
apply to income
derived from the direct use, letting, or use in any other form of
immovable property.

4. The provisions of paragraphs 1 and 3
shall also apply to
the income from immovable property of an enterprise and to income from
immovable property used for the performance of independent personal
services.

------------------------------------

ARTICLE 7

Business Profits

1. The profits of an enterprise of a Contracting State shall
be taxable only in that State unless the enterprise carries on business
in the other Contracting State through a permanent establishment
situated therein. If the enterprise carries on or has carried on
business as aforesaid, the profits of the enterprise may be taxed in
the other State but only so much of them as is attributable to:

(a) that permanent establishment, and;

(b) sales of goods and
merchandise of the same or similar kind as those sold, or from other
business activities of the same or similar kind as those effected,
through that permanent establishment.

2. Subject to the provisions of paragraph 3, where an
enterprise of a Contracting State carries on business in the other
Contracting State through a permanent establishment situated therein,
there shall in each Contracting State be attributed to that permanent
establishment the profits which it might be expected to make if it were
a distinct and separate enterprise engaged in the same or similar
activities under the same or similar conditions and dealing wholly
independently with the enterprise of which it is a permanent
establishment. In any case, where the correct amount of profits
attributed to a permanent establishment is incapable of determination
or the ascertainment thereof presents exceptional difficulties, the
profits attributable to the permanent establishment may be estimated on
a reasonable basis provided that the result shall be in accordance with
the principles laid down in this Article.
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ARTICLE 10

Dividends

1. Dividends paid by a company which is a resident of a
Contracting State to a resident of the other Contracting State may be
taxed in that other State.

2. However, such dividends may also be taxed in the
Contracting State of which the company paying the dividends is a
resident, and according to the laws of that State, but if the recipient
is the beneficial owner of the dividends the tax so charged shall not
exceed:

(a) 15 per cent of the gross amount of the dividends if the
beneficial owner is a company which controls directly or indirectly at
least 10 per cent of the voting power in the company paying the
dividends;

(b) 25 per cent of the gross amount of the dividends in all
other cases.

3. The provisions of paragraphs 1 and 2 shall not affect the
taxation of the company on the profits out of which the dividends are
paid.

4. The term “dividends” as used in this Article means income
from shares or other rights, not being debt-claims, participating in
profits, as well as income assimilated to income from shares by the
taxation law of the State of which the company melding the distribution
is a resident.

5. The provisions of paragraphs 1 and 2 shall not apply if
the beneficial owner of the dividends, being a resident of a
Contracting State, carries on business in the other Contracting State
of which the company paying the dividends is a resident, through a
permanent establishment situated therein, or performs in that other
State independent personal services from a fixed base situated therein,
and the holding in respect of which the dividends are paid is
effectively connected with such permanent establishment or fixed base.
In such case the provisions of Article 7 or Article 14, as the case may
be, shall apply.

6. Where a company which is a resident of a
Contracting State derives profits or income from the other Contracting
State, that other State may not impose any tax on the dividends paid by
the company, except insofar as such dividends are paid to a resident of
that other State or insofar as the holding in respect of which the
dividends are paid is effectively connected with a permanent
establishment or a fixed base situated in that other State, nor subject
the company’s undistributed profits to a tax on the company’s
undistributed profits, even if the dividends paid or the undistributed
profits consist wholly or partly of profits or income arising in such
other State.

ARTICLE 11

Interest

1. Interest arising in a Contracting State and paid to a
resident of the other Contracting State may be taxed in that other
State.

2. However, such interest may also be taxed in the
Contracting State in which it arises and according to the law of that
State, but if the recipient is the beneficial owner of the interest,
the tax so charged shall not exceed 15 per cent of the gross amount of
the interest.

3. Notwithstanding the provisions of paragraph 2,

(a) interest arising in a Contracting State and paid to a
resident of the other Contracting State shall be exempt from tax in the
first-mentioned State if:

(i) the payer of the interest is the Government of that
Contracting State or of a political subdivision or local authority
thereof;

(ii) the beneficial owner of the interest is the central
bank of the other Contracting State; or

(iii) the interest is paid to an agency or instrumentality
(including a financial institution) which may be agreed upon in letters
exchanged between the competent authorities of the Contracting States.

(b) (i) interest arising in India and paid to a resident
of Canada shall be taxable only in Canada if it is paid in respect of a
loan made, guaranteed or insured, or a credit extended, guaranteed or
insured by the Export Development Corporation; or

(ii) interest arising in Canada and paid to a resident of India
shall be taxable only in India if it is paid in respect of a loan made,
guaranteed or insured, or a credit extended, guaranteed or insured by
the Export-Import Bank of India (Exim Bank).

4. The term “interest” as used in this Article means income
from debt-claims of every kind, whether or not secured by mortgage, and
in particular, income from government securities and income from bonds
or debentures, including premiums and prizes attaching to such
securities, bonds or debentures, as well as income assimilated to
income from money lent by the taxation law of the State in which the
income arises. However, the term “interest” does not include income
dealt with in Article 8 or in Article 10.

5. The provisions of paragraphs 1 and 2 shall not apply
if the beneficial owner of the interest, being a resident of a
Contracting State, carries on business in the other Contracting State
in which the interest arises, through a permanent establishment
situated therein, or performs in that other State independent personal
services from a fixed base situated therein, and the debt-claim in
respect of which the interest is paid is effectively connected with
such permanent establishment or fixed base. In such case the provisions
of Article 7 or Article 14, as the case may be, shall apply.

6. Interest shall be deemed to arise in a Contracting State
when the payer is that State itself, a political subdivision, a local
authority or a resident of that State. Where, however, the person
paying the interest, whether he is a resident of a Contracting State or
not, has in a Contracting State a permanent establishment or a fixed
base in connection with which the indebtedness on which the interest is
paid was incurred, and such interest is borne by such permanent
establishment or fixed base, then such interest shall be deemed to
arise in the State in which the permanent establishment or fixed base
is situated.

7. Where, by reason of a special relationship between the
payer and the beneficial owner or between both of them and some other
person, the amount of the interest, having regard to the debt-claim for
which it is paid, exceeds the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply only to the
last-mentioned amount. In such case, the excess part of the payments
shall remain taxable according to the law of each Contracting State,
due regard being had to the other provisions of this Agreement.

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ARTICLE 13

Capital Gains

1. Gains from the alienation of ships or aircraft operated in
international traffic by an enterprise of a Contracting State and
movable property pertaining to the operation of such ships or aircraft,
shall be taxable only in that State.

2. Gains from the alienation of any property, other than
those referred to in paragraph 1 may be taxed in both Contracting
States.

Calls welcomed from 10 AM to 9 PM 7 days a week
Vancouver (LA) time - (please do not fax or
phone outside of those hours as this is a home office) expert US Canada Canadian American
Mexican Income Tax service help.

David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
family, estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence & authority.

Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST for in
person or if you are on the telephone in
Canada)expert US Canada Canadian American
Mexican
Income Tax service and help.

This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.

$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.

$1,200 would be the same with one
rental

$1,300 would be the same with one
business no rental

$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.

$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and
you moved in and out of the country.

This is just a guideline for US /
Canadian returns

We will still
prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up. However, if
you have a stack of
1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an
average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or
T101 --- Income trusts with amounts in box 42 are an even larger
problem and will be more expensive. - i.e.
20 information slips will be
at least $350.00

With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.

A Business for $400 - Rental and
business likely $550 to $700

And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.

Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.

TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.

8891 forms are generally $50.00 to
$100.00 each.

18 RRSPs would be $900.00 - (maybe
amalgamate a couple)

Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the
Canadian return as a guide for seven years at a time will be from $150
to
$600.00 per year depending upon numbers of bank accounts, RRSP's,
existence of rental houses, self employment, etc. Note that these
returns tend to be informational rather than taxable. In fact, if
there are children involved, we usually get refunds of $1,000 per child
per year for 3 years. We have done several catch-ups where the client
has received as much as $6,000 back for an $1,800 bill and one recently
with 6 children is resulting in over $12,000 refund.

Email and Faxed information is convenient for the sender but very time
consuming and hard to keep track of when they come in multiple files.
As of May 1, 2008, we will charge or be charging a surcharge for
information that comes in more than two files. It can take us a
valuable hour or more to try and put together the file when someone
sends 10 emails or 15 attachments, etc. We had one return with over 50
faxes and emails for instance.

This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.